IRS Announces Increase in De Minimis Safe Harbor Rule for Small Business Capital Expenses

It is a common decision for a small business to not keep audited financial statements, which means they do not get some of the tax benefits given to companies that have “applicable financial statements.” One such tax provision is the amount a company can claim under the de minimis safe harbor for capital items.

The de minimis safe harbor is designed to reduce paperwork and recordkeeping requirements, but still allow business to deduct expenses for improvement in tangible property that would normally qualify as a capital item. Under the previous Internal Revenue Service (IRS) regulation, the small business not keeping applicable financial statements were limited to $500, while those with audited financial statements were allowed up to $5,000. Starting with the 2016 tax year, the small business not keeping audited financial statements will be able to deduct up to $2,500 per invoice under the de minimis safe harbor for expenses to improve tangible property.

What this means for many small business owners is that expenses for the “acquisition or production of new property or for the improvement of existing property” may be deducted if the expenditure is less than $2,500 per invoice. This should ease accounting burdens and paperwork requirements for small business that sought to deduct these types of expenses under the previous rule.

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IRS Announces “Taxes. Security. Together.”

On November 19, 2015, the IRS announced the newest campaign to help protect taxpayer information, “Taxes. Security. Together.” The campaign is a public awareness campaign aimed at encouraging taxpayers to protect personal and financial data. This effort comes as a result of the recent Security Summit which was the collaboration of the IRS, states, and members of the tax industry.

The campaign will complement the IRS’s own efforts to protect personal data by providing taxpayers with information about how they can protect their own sensitive information. Through April 2016, Taxpayers should expect to see YouTube videos, weekly tax tips, and local events across the county. A new tax tip will be published each Monday through the start of the tax season in January.

Within the announcement, the IRS provided some simple efforts for taxpayers to protect data:

• Utilize security software and other efforts to protect computes. This includes firewalls, anti-virus protection, file encryption, and strong passwords
• Be aware of email and phone scams. Taxpayers should be aware of the various efforts identity thieves are using to steal names, Social Security numbers, passwords, credit card numbers and bank information. The IRS has recently warned of emails, calls and text message. For our blog regarding these scams, see IRS Warns of Tax Scams, available at https://hvwtaxandbusinesslaw.wordpress.com/2015/08/14/irs-warns-of-tax-scams/
• Protect personal information: The IRS reminds taxpayers not to routinely carry Social Security cards and the dispose of old tax returns or client copies provided by preparers. Taxpayers should consider checking credit reports and Social Security Administration accounts to monitor for fraudulent activity.

For additional information about the announcements following the Security Summit, see our previous blog post, New Efforts by the IRS to Detect Identity Theft, available at https://hvwtaxandbusinesslaw.wordpress.com/2015/11/04/new-efforts-by-the-irs-to-detect-identity-theft/

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President Obama announces “ban the box” executive orders

Many employment applications include a question pertaining to the applicant’s past criminal behavior and whether they have been convicted of any crimes. More often than not, checking the yes box immediately removes the applicant from the pool of potential candidates, regardless of the crime committed or factors involved in the applicant’s conviction. For the 600,000 individuals that are released from federal or state prison on an annual basis, getting a job is a key step in putting their lives back on track.

The Obama administration believes that by delaying the revelation regarding an applicant’s criminal background, many applicant’s will have a better opportunity to be hired. It will allow the applicant to proceed in the interview process and have an opportunity to explain the criminal background. President Obama cited this barrier as one of the most challenging aspects of a criminal re-entering society.

In the short term, President Obama issued executive orders that will eliminate the question from applications for many federal positions. However, for private employers to be subject to a similar rule, Congressional action will be required. Therefore the announcement by the Obama administration will only immediately impact those applying for federal positions.

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New Efforts by the IRS to Detect Identity Theft

The IRS is continuing to make efforts to limit taxpayer victimization from tax scams or identity theft. This year the IRS worked with tax preparers and state governments to identify ways to prevent identity theft related to tax filings. In a recent news release, the IRS announced that following a Security Summit, the IRS and leaders in the tax preparation industry developed new methods for protecting taxpayers.

These methods include the development of 20 data components that will be submitted with a tax return transmission. The IRS will now review for improper or repetitive use of IP addresses and review computer device identification data. Additionally, the IRS identified that it will review the time it took to complete the tax return as a way to detect mechanized fraud. Finally, there will be metadata attached to the transmission that the IRS stated will be used to detect identity theft related fraud.

As part of the Security Summit, major tax preparer software companies, H&R Block, Intuit, TaxHawk, and TaxSlayer all indicated a commitment to protect taxpayer data for the upcoming tax season. For taxpayers using tax preparation software from these companies, they will likely see additional security questions and device recognition upon logging in. These features will be similar to those used in online banking.

For more information, see IRS, States, Industry Continue Progress to Protect Taxpayers from Identity Theft (Oct. 20, 2015), available at https://www.irs.gov/uac/Newsroom/IRS,-States,-Industry-Continue-Progress-to-Protect-Taxpayers-from-Identity-Theft.

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Internal Revenue Service Releases 2016 Tax Numbers

On October 21, 2015, the Internal Revenue Service released the annual inflation adjustments for more than fifty tax provisions and the tax rate schedules for individuals, married individuals filing jointly, and heads of households. For 2016, Taxpayers will see a slight increase in some tax benefits, while other benefits will remain the same. Along with the tax benefits, several penalties have also been adjusted.

We updated our Key Tax Numbers which can be located on our website at the following link: Key Tax Numbers. Additionally, the IRS provided a summary of the provisions that it believes would be of the greatest interest to most tax payers. The summary and a link to the Revenue Procedure can be found at https://www.irs.gov/uac/Newsroom/In-2016-Some-Tax-Benefits-Increase-Slightly-Due-to-Inflation-Adjustments,-Others-Are-Unchanged. Alternatively, the Revenue Procedure will appear in the Internal Revenue Bulletin 2015-44 dated November 2.

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Changes to Qualified Plan Determination Letter Program

The Internal Revenue Service (IRS) has made changes to the determination letter process for individually designed qualified retirement plans. For qualified plans currently in existence, several changes will occur beginning January 1, 2017. The 2017 changes will eliminate the 5 year remedial amendment cycle for individually designed plans and the accompanying determination letter process. Although the IRS will still accept determination letters for initial plan qualification and in other limited contexts, the 5-year amendment cycle and accompany determination letter process will largely be eliminated in 2017. The IRS has requested comments from practitioners on additional regulatory and other guidance needed to assist plan sponsors as a result of the changes announced by the IRS.

In addition, the availability of “off-cycle” determination letters has also been eliminated effective immediately. A plan’s determination letter application is filed off-cycle if it is submitted anytime other than during the last 12-month period of the plan’s remedial amendment cycle. Except for initial plan qualification determination letters, the IRS will no longer issue determination letters outside the parameters of the 5 year retroactive compliance cycle.

The IRS cites the need for more efficient use of resources in the eventual elimination of the 5 year retroactive amendment cycle determination letter process, and the immediate elimination of the off-cycle letters.

The IRS announcement may be found at the following link: http://www.irs.gov/pub/irs-drop/a-15-19.pdf

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IRS Issues Publications on Electronic Filing of Health Care Coverage Information Returns

The Patient Protection and Affordable Care Act (PPACA) implemented information reporting requirements for employers. Known as information returns, the employer supplied information allows the government to ascertain whether the employer is meeting their requirements under the PPACA. The type of information submitted pertains to the type of employer health-coverage offered, specific employee coverage, and other various requirements under the act.

In order to facilitate the information returns, the Internal Revenue Service (IRS) allows these filings to be submitted electronically. Known as the “AIR” system, the IRS issued publications to guide employers wishing to submit the PPACA information returns electronically. In order to submit the information returns, the employer must first create an account at least 28 days prior to submitting information. For some employers, such as those with over 250 of one type of information return, the returns must be submitted via the AIR system.

The AIR filings are subject to very specific instructions and requirements. To retrieve these publications, please visit the following website. http://www.irs.gov/for-Tax-Pros/Software-Developers/Information-Returns/Affordable-Care-Act-Information-Return-AIR-Program?utm_source=Mondaq&utm_medium=syndication&utm_campaign=inter-article-link

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Beginning Farmer Tax Credit Application Due Oct. 1

The deadline to apply for the Iowa Agricultural Asset Transfer Tax Credit, otherwise known as the Beginning Farmer Tax Credit, is October 1, 2015. For landowners leasing agricultural assets to a beginning farmer and wishing to take advantage of the tax credit,  an application must be submitted to the Iowa Agricultural Development Division by the deadline to be considered for the 2015 tax year.

The Beginning Farmer Tax Credit was passed by the Iowa legislature in 2006 and became operative for the 2007 tax year. The goal of the Iowa legislature was to ensure that agricultural land remained active and continued to produce agricultural products.  The tax credit has specific guidelines, including limitations and qualifications on the asset that can be leased. For example, a qualifying asset is agricultural land, buildings, and depreciable property located in Iowa and used for farming purposes. Depending upon the underlying asset and lease agreement, the specific value of the tax credit will vary. For those applying, the application fee and other requirements will vary based upon similar factors.

A joint application must be submitted by the beginning farmer and the asset owner. Additional financial information and other documents may be required. The application form can be download at the Iowa Finance Authority website: http://iowafinanceauthority.gov/File/DownloadFile/5260.

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FBAR Deadline Moved to April 15 for 2017 Filings

The Reports of Financial Bank and Financial Accounts (FBAR) will be due April 15, starting for returns due in 2017, for taxable year 2016. The new due date is more than two months earlier than the previous June 30th due date, but will align with the due date for individual income tax returns. The new law, however, allows certain taxpayers the potential for an extension to the filing deadline, up to October 15. Under the previous rule, all FBARs were due on June 30th, without the possibility of extension. Americans living abroad receive the same automatic extension as received for income tax returns to June 15 for filing the FBAR.

Annual FBAR filings are required of an American taxpayers that own or have signature authority over foreign financial accounts, if the aggregate amount of all foreign accounts is greater than $10,000. Penalties for willful or fraudulent violations of this law can come as a substantial fine or even up to five years of prison time. Although these provisions, enforced by the Financial Crimes Enforcement Network (FinCEN), generally have not changed, one new addition has been added. Specifically, the Secretary now has the power to waive the penalty for failure to file or request an extensions for first time offenders.

The FBAR changes are a result of a small provision within the highway appropriations bill, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, signed into law on July 31, 2015.

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Understanding and Preventing Unintentional Copyright Infringement on Websites

Federal copyright law protects a copyright owner from a wide range of intentional and unintentional infringement. For example, an entity that runs a blog or a website could be liable for copyright infringement if a third party posts copyrighted material onto the webpage. In fact, the federal copyright law is broad and states: “[a]nyone who violates any of the exclusive rights of the copyright owner . . .  is an infringer of the copyright or right of the author, as the case may be.” 17 U.S.C. § 501. In conjunction with the strict liability standard used in copyright infringement cases, violating federal copyright law becomes frequent and difficult to prevent in the digital age.

In light of modern technology, new copyright challenges have emerged, such as one found in Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146 (9th Cir. 2007), which involved two large technology companies, Google and Amazon. The issue, in essence, was Google and Amazon infringing upon copyrighted photographs because Google’s automated website indexing propagated the photographs in image searches, and subsequently on Amazon for other related services. Although this complex litigation involved a multitude of factors within copyright law, the issue in the case highlights the propensity for unintended copyright infringement with technology.

Fortunately, Congress recognized this issue in 1998 and passed the Digital Millennium Copyright Act, creating safe harbors for unintentional copyright infringement in specific situations. Although the safe harbors are somewhat limited, the law is intended to “balance the interests of copyright owners and online service providers by promoting cooperation, minimizing copyright infringement, and providing a higher degree of certainty to service providers on the question of copyright infringement.” Capitol Records, Inc. v. MP3tunes, LLC, 821 F.Supp.2d 627 (S.D.N.Y. 2011). Ultimately, this means every entity that has a website, blog, or online community of some sort, should take measures to ensure that their online presence fits within a safe harbor or does not violate copyright law.

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